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Phibro's (PAHC) Q3 Earnings Miss Estimates, Margins Fall

Zacks Equity Research

Phibro Animal Health Corporation PAHC reported adjusted earnings per share (EPS) of 39 cents in the third quarter of fiscal 2019, showing a 15.2% drop from the year-ago number. The figure missed the Zacks Consensus Estimate by 9.3%.

This year-over-year decline can be primarily attributed to escalating product costs leading to gross margin contraction.

Meanwhile, without adjustments, reported EPS was 37 cents, reflecting a fall of 24.5% from the year-ago count.

Net Sales

In the quarter under review, net sales totaled $205.7 million, down 1.5% year over year owing to substantially lower sales in two core segments — Animal Health and Mineral Nutrition.


Phibro Animal Health Corporation Price, Consensus and EPS Surprise


Phibro Animal Health Corporation Price, Consensus and EPS Surprise | Phibro Animal Health Corporation Quote


Segmental Sales Break-Up

During the third quarter, Animal Health net sales declined 2% to $129.2 million. Within this segment, the company registered $84.1 million, a 1% sales growth within medicated feed additives (MFAs). This was driven by consistent volume expansion in Asia and Latin America, partially offset by reduced domestic demand from the poultry and swine sectors. Nutritional specialty product sales dropped 10% to $28.2 million due to volume declines on account of unfavorable dairy industry conditions and diminishing demand from poultry consumers. Apart from this, net vaccine sales dropped 6% year over year to $16.9 million due to the disruption of a domestic distribution arrangement and an unstable global economy.

Net sales at the Mineral Nutrition segment fell 4% year over year to $60.7 million owing to reduced volumes. However, an increase in average selling prices partially offset the volume reduction. The sale prices rose on an increase in underlying commodity prices.

Net sales at the Performance Products segment rose 16% to $15.9 million backed by higher volumes of personal care products.

Operational Update

Phibro’s third-quarter gross profit declined 6% year over year to $64.8 million. Gross margin contracted 158 basis points (bps) to 31.5%.

Selling, general and administrative expenses in the reported quarter came in at $42.3 million, down 0.7% from the year-ago quarter.  

Operating profit declined 15.1% year over year to $22.5 million and operating margin contracted 175 bps to 10.9% in the quarter under review.

Financial Update

At the end of the third quarter of fiscal 2019, net cash provided by operating activities amounted to $15.7 million, down from the year-ago $22.8 million. Capital expenditure amounted to $7.7 million in this quarter, reflecting an increase from $4.1 million in the prior-year quarter.

FY19 Outlook

The company has slashed its guidance for fiscal 2019. Net sales projection has been reduced to the range of $828-833 million (earlier band $850-$875 million). Adjusted EPS guidance has also been lowered to the range of $1.50-1.55 (earlier $1.62-$1.75).

The Zacks Consensus Estimate for fiscal revenues 2019 is pegged at $855.9 million, above the guided range. The same for adjusted EPS is pegged at $1.68, which is also above the provided range.

Our Take

Phibro ended the third quarter of fiscal 2019 on a disappointing note. Revenue decline across core segments and contraction in margins are concerning. The reduced full-year guidance indicates dull performance through 2019.

On an optimistic note, the company witnessed double-digit revenue growth in its Performance Products segment. Strong volume growth in foreign markets, especially within Animal Health, offset the fall in domestic sales. The company is upbeat about its solid China business, as customers took programmed deliveries.

Zacks Rank & Key Picks

Phibro currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks with solid results this earnings season are Stryker Corporation SYK, DENTSPLY SIRONA XRAY and CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Meanwhile, revenues of $3.52 billion were in line with the consensus estimate.

DENTSPLY reported adjusted EPS of 49 cents in the first quarter of 2019, beating the Zacks Consensus Estimate of 38 cents. Revenues came in at $946.2 million and surpassed the Zacks Consensus Estimate of $917.1 million.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, which exceeded the Zacks Consensus Estimate of 54 cents. Also, revenues of $218.4 million outshined the consensus mark of $213 million.

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